Excess Committee Funds Given to outside company

Just have to run this past others to see what they think.
A swim team committee that has been in operation for many years, decided on their own to raise funds from sponsorships (this was not in their budget) because they heard that the HOA might have to dissolve the committee and begin a new relationship with them after they form a separate entity (company). They wanted to use the extra funds to start up the new company.
Now that they are a separate entity, efforts to agree on a contract with the HOA have failed, and the new entity is demanding the extra funds be turned over to them.
The Board thinks that they should turn over the funds to avoid any legal action against the HOA.
Wouldn't the funds belong 100% to the HOA, since the funds were earned while the group was an HOA committee? What can homeowners do to stop the Board from turning over the funds?

I think that there are likely a lot of technicalities contained within the documents that were used when soliciting sponsorships. Therefore, as Glen pointed out, it is likely best for the two sides to reach some sort of compromise or, at the very least, seek a legal opinion from someone who would have access to all of those records.

Mind you, a legal opinion may cost between $400 and $600 dollars. Perhaps the amount of funds involved simply isn't worth that expense.

It's unclear to me what you mean by Extra Funds.

Are these funds that were raised by the Club on their own? Or did these funds come from HOA Assessments?

Let me add that this end-of-season fundraising was done without notifying the Board of their intent. The Board has always required that committees come to the Board and ask permission if anything occurs that would be different than the budget they originally submitted.

I don't understand why the homeowners are up in arms.

They are not subsidized in any way by the Association. The money was raised by their own efforts. In raising the money, I'm sure that they told donors how they intended to use the money.

If I was a local business, I might want to sponsor their sports club, but if I was told that the money was going into the HOA general fund, I'd send them packing.

Your Board has the authority to make contracts. And counsel has probably advised the Board that the Club has a pretty good claim to the funds because the Club raised the funds.

The Board is making a reasonable financial decision to avoid paying $30k to have a chance of keeping either $0 or $10k.

So what's the beef?

The problem is that the action the committee took violates their charter and the governing docs.
It would be like the Open Space Committee fundraising while under the umbrella of the HOA, then turning around and starting up their own landscaping business and then demand the money that was raised.

Well there are a few other questions that haven't been asked.

Were there any conditions on the fundraising? For example, the business donated money for a specific purpose or for a specific use vs. just being able to be used for whatever.

To word that another way, What did the printed material say or the individual checks say when the donation was made?

Did the business understand that excess funds would go to the general fund of the Association (as this had been the practice in the past)?

My suggestion - split the money and quit spending it on the attorneys.

Thank you Tim and Doug for your answers.
The swim team committee was always a committee of the HOA, but was expected to spend whatever income they brought in. Anytime the ST committee had more income than expenses, that extra income stayed in the general fund of the HOA.
All checks, including those received from fundraising, were written to the HOA. We have no idea what those businesses were told when they gave money to the committee. We don't know if they were told that the funds were for the committee for the following season, or if they were told that the funds were going towards an LLC that was not in existence at the time. If it was the latter, then it should have raised red flags with the businesses to be writing their check out to the HOA.
I think things could have turned out differently if the committee approached the Board and explained what they wanted to do, and at least work towards some type of agreement if possible, that would have been financially responsible. But they operated as they have in the past, as if they were a separate entity and not a committee. Over the years, the team changed from being a majority of residents to a large majority of non-residents, which is the main reason the HOA dissolved the committee - liability.

To make all of this worse, the HOA President's children swim on the team and his wife was on the committee and was on the LLC's Board until residents complained of conflict of interest. The President has been influencing the other Board members in favor of the LLC and not in the best interest of the HOA. I read on another post that the residents can motion for the President's removal - is that correct?

It's likely this income was never reported nor were any taxes paid on it. Raising the issue in public should take care of that little oversight.

Yep, and no one knows better than the president how many other skeletons the HOA has in the closet. The person they are trying to remove. LOL.

Good luck with your HOA.

I can only hope its your face that shows up on the 6 o'clock news when they run the story about an HOA stealing money from a children's swim team fundraiser and you saying "they are not legally entitled to it." I would assume you will have flat tires on your car everyday for years.

What is your role, Joy? Are you on the board? Or do you serve your HOA in some other capacity?

First, Re: the HOA president. Assuming he's a director, it's usually true that he can only be removed as a director by H/O vote. Usually, however, he can be removed from the office of president by a majority vote of only the Board. Learn more in your bylaws.

I tend to agree with those who say give the club back the $10k it raised. Their failure to follow proper protocol was the Board's fault for not properly supervising the Committee! Still, no reason to incur court costs, lawyers' fees, etc.

I also agree that the Board should expect some compensation for the time the club used the pool. Was it the case that when the club used the pool other H/Os were kept out? How to compute that amount?? Don't know, but, assuming a lot of ST members, the pool may have needed extra chemicals for additional use and may have had to be filled with extra water more often than if just used by residents. The locker rooms' showers may have run more too. Was the HOA also paying to have ST members taken to distant competitive events? And to register for such events? But how much does that add up to? Worth being upset about?

If so, this is unlike other committees, e.g., a social comm, that invites the entire community to a social event in the clubhouse. No one is excluded.

It seems to me that the lesson here is that Boards need to be very hands-on with their committees without micromanaging them. Committees are (at least per CA Corps. Code), after all, appointed by the Board and the Board may disband them too or expel one or more members Many HOA committees have a board liaison, who attends meetings, who makes sure that the committee is proceeding correctly.

(Hope I didn't misread anything)

Well said. Talk about a hot potato.